need help with these homework questions. Please show your work. 1. Calculate the

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need help with these homework questions. Please show your work.

1. Calculate the present value of a $10,000 annual perpetuity, assuming a 6% annual discount rate.

2. Calculate the future value of an annuity of $5,000 each year for eight years, deposited at a 6% annual interest rate.

3. Sara has decided to set up an account that will pay her granddaughter, Lexi, $5,000 per year indefinitely. How much should Sara deposit in an account paying 8% annual interest to accomplish this goal?

4. $100 is received at the beginning of Year 1; $200 is received at the beginning of Year 2; and $300 is received at the beginning of Year 3. If these cash flows are deposited at a 12% annual interest rate, calculate their combined future value as of December 31, Year 3.

5. To expand its business, the Sleeper Outlet Factory would like to issue a bond with a par value of $1,000, a coupon interest rate of 10%, and a maturity of 10 years from now. Calculate the market value of the bond at each of the following levels of required rate of return:

  a. Required rate of return of 8%.

  b. Required rate of return of 12%.

6. Lake Manufacturing Company, Inc. has completed an analysis of its firm and expected industry and economic conditions. The firm is expected to earn $4.60 per share of outstanding common stock during the nextyear. The average Price/Earnings ratio for firms in the same industry is 8. Calculate the estimate market value of a share of Erie Manufacturing Company

Explanation / Answer

1) PV = C / r =10000/0.06 = $166666.67

2)PV = (C/r)*(1-(1+r)^-n) = (5000/0.06)*(1-(1.06)^-8) = $31048.97

FV = PV(1+r)^n = 31048.97*(1.06)^8 = $49487.34

3)PV = C/r = 5000/0.08 =$62500

4)FV = 100*1.12^2 + 200*1.12^1 + 300 = $649.44

5)At r= 8% P = (C/r)*(1-(1+r)^-n + FV/(!+r^n

= (100/0.08)*(1-(1.08)^-10) + 1000/(1.08)^10 = $1134.20

At r= 10% P = (C/r)*(1-(1+r)^-n + FV/(!+r^n

= (100/0.1)*(1-(1.1)^-10) + 1000/(1.1)^10 = $1000

6) P = (P/E)*E = 8*4.6 = $36.8

7) P = D(1)*(1+g)/(r-g) = 4*1+g)/(.13-g) = 80

g = 0.076 = 7.61%

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